Caspian Sea Drinks is considering the purchase of a new water filtration system produced by Rube Goldberg Machines. This new equipment, the RGM-7000, will allow Caspian Sea Drinks to expand production. It will cost $15.00 million fully installed and will be fully depreciated over a 15 year life, then removed for no cost. The RGM-7000 will result in additional revenues of $2.96 million per year and increased operating costs of $689,148.00 per year. Caspian Sea Drinks' marginal tax rate is 28.00%. The internal rate of return for the RGM- 7000 is Submit Answer format: Percentage Round to: 4 decimal places (Example: 9.2434%, % sign required. Will accept decimal format rounded to 6 decimal places (ex: 0.092434))

Caspian Sea Drinks is considering the purchase of a new water filtration system produced by Rube Goldberg Machines. This new equipment, the RGM-7000, will allow Caspian Sea Drinks to expand production. It will cost $15.00 million fully installed and will be fully depreciated over a 15 year life, then removed for no cost. The RGM-7000 will result in additional revenues of $2.96 million per year and increased operating costs of $689,148.00 per year. Caspian Sea Drinks' marginal tax rate is 28.00%. The internal rate of return for the RGM- 7000 is Submit Answer format: Percentage Round to: 4 decimal places (Example: 9.2434%, % sign required. Will accept decimal format rounded to 6 decimal places (ex: 0.092434))

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

See similar textbooks

Related questions

Q: Becket Industries is considering a proposal for the acquisition of a new piece of highly automated…

A: The net present value or NPV is computed to find the financial viability of a proposal. The projects…

Q: Mersey Chemicals manufactures polypropylene that it ships to its customers via tank car. Currently…

A: Data given: Initial tank car cost=$1.9 million * 2=$ 3.8 million Inflation rate=0% Depreciable life=…

Q: A firm is considering replacing the existing industrial air conditioning unit. They will pick one of…

A: This is related to capital budgeting. Equivalent annual cost (EAC) is used to compare projects that…

Q: Lee, Inc. is considering the production of a new line of soft drinks at its Springfield, IL plant.…

A: when a company considers investing in a project, the depreciation charged every year on the…

Q: What is the NPV of Pigpen's project? Note: Enter your answer in thousands, not in millions, rounded…

A: The net present value is similar to the amount of money you will make on an investment less the…

Q: Eradicator Food Prep, Inc., has invested $7 million to construct a food irradiation plant, which…

Q: South Side, Inc., is considering opening a branch in another state. The operating cash flow will be…

A: An internal rate of return is employed to assess the profitability of an investment. It is a…

Q: Esquire Company needs to acquire a molding machine to be used in its manufacturing process. Two…

A: Present Value is the current price of future value which will be received in near future at some…

Q: Lakeside Winery is considering expanding its winemaking operations. The expansion will require new…

A: Initial outflow = cost of new equipment + working capital =$697000 +$ 62000…

Q: A tool and die company in Hanover is considering the purchase of a drill press with fuzzy - logic…

A: Capital budgeting is a way to evaluate the profitability of new projects or investments by using…

Q: U.S. Steel is considering a plant expansion to produce austenitic, precipitation hardened, duplex,…

A: Plant expansion is expected to cost $17 millions now and another $10 million 1 year from nowwith…

Q: Caroline’s Chill Chronometers (3C) is considering buying a machine for $600 million. The machine…

A: Calculation of NPV is shown below: Hence, the NPV is $130,327,287.03.

Q: U.S. Steel is considering a plant expansion to produce austenitic, precipitation hardened,duplex,…

A: TVM refers to the capacity of money to earn interest because money earned earlier is considered more…

Q: The Fizzy Beverage Co. is considering two alternative capital projects. Project 1: expansion of its…

A: NPV represents the amount of profitability in absolute terms generated by a project or an…

Q: US. Steel is considering a plant expansion to produce austenitic, precipitation hardened, duplex,…

A: Return is an additional amount earned on invested amount or total cost incurred to start and operate…

Q: virtually zero, how much must the company make annually in years 1 through 10 to recover its…

A: Capital recovery is an economic term used to earn back the initial funds that is put into an…

Q: Memorial Hotel & Spa is considering expanding its restaurant business with a 2 new restaurant in…

A: Land quality survey cost =$250,000Two new restaurants cost =2 × 3.68=$7.36 million…

Q: United Pigpen is considering a proposal to manufacture high-protein hog feed. The project would make…

A: Initial cost = $1,350,000Sales = $470,000Manufacturing cost = 90% of salesInflation rate =4%Tax rate…

Q: U.S. Steel is considering a plant expansion to produce austenitic, precipitation hardened, duplex,…

A: TVM refers to the capacity of money to earn interest because money earned earlier is considered more…

Q: Abbott Mining Systems wants to determine whether it should upgrade a piece of equipment used in deep…

A: Future value refers to the current value of an asset that will be present at some future date after…

Q: Lakeside Winery is considering expanding its winemaking operations. The expansion will require new…

A: Net Present Value (NPV) is a financial concept widely used in investment analysis and capital…

Q: If the value of the injected water is $3.00 per thousand gallons, which alternative, if either,…

A: B/C Ratio: It is a measure used in capital budgeting to show the relationship between the benefits…

Q: Rearden Metals is considering opening a strip mining operation to provide some of the raw materials…

A: IRR stands for Internal Rate of Return. It is a financial metric used to evaluate the profitability…

Question

#34
Caspian Sea Drinks is considering the purchase of a
new water filtration system produced by Rube Goldberg
Machines. This new equipment, the RGM-7000, will
allow Caspian Sea Drinks to expand production. It will
cost $15.00 million fully installed and will be fully
depreciated over a 15 year life, then removed for no
cost. The RGM-7000 will result in additional revenues of
$2.96 million per year and increased operating costs of
$689,148.00 per year. Caspian Sea Drinks' marginal tax
rate is 28.00%. The internal rate of return for the RGM-
7000 is
Submit
Answer format: Percentage Round to: 4 decimal places
(Example: 9.2434%, % sign required. Will accept
decimal format rounded to 6 decimal places (ex:
0.092434))
unanswered
not_submitted
Attempts Remaining: Infinity

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1 As per the question

Step 2 Solution

Step 3 Solution

Step 4 Solution

Step 5 Answer

Step by step

Solved in 5 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

Woodland Furniture (WF) is a firm producing wooden furniture for household uses. WG is now considering constructing a new production facility in Indonesia. The existing production facility will be closed if the project is to go ahead. The facility will be built on a piece of land located in the forest that WF has just purchased at $10 million for the purpose. The land is expected to be worth $2 million at the end of the project. WF uses a ten-year planning horizon for all of its capital budgeting decisions. The production facility will be constructed at a cost of $12 million. It will be depreciated at its full costs on a straight-line basis over its estimated useful life of 10 years, and its salvage value is $4 million. Machinery will also be purchased at a cost of $6 million. The machinery will also be depreciated at its full costs on a straight-line basis over its estimated useful life of 10 years. Its salvage value is $500,000. In addition, an initial investment of $2 million…
please show work i need to learn this. Cameron Industries is purchasing a new chemical vapor depositor in order to make silicon chips. It will cost $7,000,000 to buy the machine and $10,000 to have it delivered and installed. Building a clean room in the plant for the machine will cost an additional $3 million. The machine is expected to raise revenues by $3,000,000 per year, starting at the end of the first year, with associated costs (other than depreciation) of $1 million for each of those years. The machine is expected to have a working life of six years and will be depreciated over those six years. The marginal tax rate is 20%. What are the incremental free cash flows associated with the new machine in year 2? O $1,168,333 $831,667 $1,833,667 $1,165,000 O $665,334
Big Rock Brewery currently rents a bottling machine for $55,000 per year, including all maintenance expenses. The company is considering purchasing a machine instead and is comparing two options: a. Purchase the machine it is currently renting for $165,000. This machine will require $20,000 per year in ongoing maintenance expenses. b. Purchase a new, more advanced machine for $260,000. This machine will require $16,000 per year in ongoing maintenance expenses and will lower bottling costs by $11,000 per year. Also, $39,000 will be spent upfront in training the new operators of the machine. Suppose the appropriate discount rate is 9% per year and the machine is purchased today. Maintenance and bottling costs are paid at the end of each year, as is the rental of the machine. Assume also that the machines are subject to a CCA rate of 45% and there will be a negligible salvage value in ten year's time (the end of each machine's life). The marginal corporate tax rate is 35%. Should Big Rock…
Mersey Chemicals manufactures polypropylene that it ships to its customers via tank car. Currently it plans to add two additional tank cars to its fleet four years from now. However, a proposed plant expansion will require Mersey's transport division to add these two additional tank cars in 1 years' time rather than in 4 years. The current cost of a tank car is $1.9 million, and this cost is expected to remain constant. Also, while tank cars will last indefinitely, they will be depreciated straight-line over a five-year life for tax purposes. Suppose Mersey's tax rate is 20%. When evaluating the proposed expansion, what incremental free cash flows should be included to account for the need to accelerate the purchase of the tank cars? Incremental FCF for year 0 is how much? (Round to two decimal places and outflows as negative values.)
Vigour Pharmaceuticals Ltd. is considering investing in a new production line for its pain-reliever medicine for individuals who suffer from cardio vascular diseases. The company has to invest in equipment which costs $2,500,000 and will be depreciated under the MACRS system for a 5-year asset class. It is expected to have a scrap value of $700,000 at the end of the project. Other than the equipment, the company needs to increase its cash and cash equivalents by $100,000, increase the level of inventory by $30,000, increase accounts receivable by $250,000 and increase account payable by $50,000 at the beginning of the project. Vigour Pharmaceuticals expect the project to have a life of five years. The company would have to pay for transportation and installation of the equipment which has an invoice price of $450,000. The company has already invested $75,000 in Research and Development and therefore expects a positive impact on the demand for the new pain-reliever. Expected annual…
A chemical company is planning to release a new brand of insecticide that will kill many insect pests but not harm useful pollinators. Buying new equipment to manufacture the product will cost $15 million. The equipment is expected to have a lifetime of nine years and will be depreciated by the straight-line method over its lifetime. The firm expects that they should be able to sell 1,400,000 gallons per year at a price of $65 per gallon. It will take $36 per gallon to manufacture and support the product. If the company's marginal tax rate is 40%, what are the incremental earnings after tax in year 3 of this project? $23.36 million $9.58 million $12.72 million $15.30 million $14.30 million $24.36 million
48. Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows. a. A project's regular IRR is found by compounding the cash inflows at the WACC to find the present value (PV), then discounting the TV to find the IRR. b. If a project's IRR is smaller than the WACC, then its NPV will be positive. c. If a project's IRR is positive, then its NPV must also be positive. d. A project's IRR is the discount rate that causes the PV of the inflows to equal the project's cost. e. A project's regular IRR is found by compounding the initial cost at the WACC to find the terminal value (TV), then discounting the TV at the WACC.

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS